Walgreens Provides An Update On Rite Aid Acquisition

The prospect of Walgreens Boots Alliance’s (NASDAQ: WBA) proposed merger with Rite Aid (NYSE: RAD) rose on Thursday after the company eased investor concerns following a New York Post report on Wednesday.

As part of the regulatory process, Walgreens and Rite Aid would need to divest hundreds of its stores. Regulators are concerned that the combination of the second largest pharmacy chain, Walgreens, with the third largest chain, Rite Aid, would create an industry giant and hurt competition.

The two companies pledged to sell up to one thousand units in geographies where the regulator’s concerns are most evident.

The companies were said to be in talks with Kroger (NYSE: KR), a major grocery chain to buy 650 stores. However, the New York Post reported that the talks have ended with no agreement reached.

Rite Aid’s stock lost more than four percent on Wednesday. However, shares completely erased all of the loses and was trading higher by nearly six percent on Thursday after Walgreens provided an encouraging update to its merger in its fourth quarter earnings report.

Walgreens said in its report that it still believes it will be able to fulfill its pledge and divest between 500 and one thousand stores by the end of the year. In fact, the company also believes that it can successfully close its acquisition of Rite Aid in early 2017.

Walgreens did however add that it mutually agreed with Rite Aid to extend the end date of their merger agreement from October 27 to January 27 of next year.

Walgreens also reaffirmed its prior view that the acquisition of Rite Aid will be provide synergies in excess of $1 billion within three to four years of the deal closing.

Accordingly, Walgreens provided guidance for 2017 which includes some accretion from the integration of Rite Aid. Specifically, the company expects to earn $4.85 to $5.20 for the full fiscal year 2017. The guidance assumes accretion of five cents per share to $012 per share.

Wall Street analysts were expecting the company to earn $5.03 per share in the coming year.

Walgreens’ stock rose nearly five percent following the merger update and quarterly report in which the company earned $1.07 per share on revenue of $28.6 billion compared to Wall Street’s expectations of $0.99 per share and revenue of $29.1 billion.

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